Jesse Kline: Alberta’s economic crossroads

Alberta’s economic crossroads

Historically, the idea of a provincial sales tax has been anathema in Alberta. But the idea is clearly gaining some cachet. At a government-convened summit on Saturday, investment banker George Gosbee, for example, called for a 5% “differential sales tax” that would fluctuate based on pipeline capacity and oil prices, as well the return of provincial health-care premiums. And Jack Mintz, chair of the University of Calgary’s School of Public Policy, advocated tax reforms including a harmonized sales tax and the eventual elimination of personal income taxes.

Although value-added taxes have their merits, Albertans have a clear choice to make: Will they show the rest of the country that government can be run efficiently and spur economic growth by maintaining a business-friendly environment? Or will it turn into an unsustainable, overly bureaucratic welfare state like so many others?

If they choose the former, they must make it clear that they will not accept any net tax increases. Instituting a consumption tax with a corresponding decrease in income taxes is one thing. But Albertans should be wary of new taxes that come with vague promises of future cuts — after all, income tax and the GST were originally sold as temporary measures.

One way or another, the Tories still need to deal with a massive budget deficit. To do so, they should take a page from former premier Ralph Klein, who slashed the province’s $3-billion deficit and paid off $23-billion in debt.

When Mr. Klein retired in 2005, Alberta was the envy of the federation. His successors have raised spending by 59% and made Alberta one of the top per-capita spenders in the country — and for a middling payoff. A recent Fraser Institute study of provincial health-care systems, for example, ranked Alberta’s seventh overall in terms of value for money.

To her credit, Premier Alison Redford is saying many of the right things. Asked about the possibility of a sales tax, she told reporters she doesn’t “think we’re anywhere near that at all.” Energy Minister Ken Hughes also laid out the government’s Oil Market Diversification Strategy, which will explore entrepreneurial ways of exporting the province’s vast oil reserves.

But details of the March 7 budget leaked over the weekend show the PCs planning to increase spending by 0.6%. While this figure is below inflation and population growth, it is still too much. If the Tories are serious about cleaning up the fiscal mess they themselves created, they need to start slashing spending and streamlining government — right now.